#45 The Chess Master - George Michelakis on Long‑Short Investing, Lifestyle Recession & Man Plus Machine

**Stephen Clapham** (0:01)
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**SPEAKER_2** (0:29)
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**Stephen Clapham** (0:49)
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My guest, George Michelakis, in his youth, was one of the top three under-20 chess players in the world. No surprise, he's pretty good at investing too. He runs a London-based $2 billion long-short equity hedge fund that he founded in 2006 Since then, he has turned $100 into $535 versus $343 for the MSCI world. That's using a net exposure of 30% to 45%, which is pretty impressive. Even more surprising is that he entered his longest-running short position not 10 months ago but 10 years ago. We talked about his investing philosophy, his theory about a lifestyle recession, why shorting is critical to performance, how he manages the fund and the team, why he focuses on management, and much, much more. Some of George's insights come, I think, from having a different perspective on the world. We talked, for example, about why 7 Formula 1 drivers are under 23 because they're learning on simulators and what this means for investing. Man plus machine was extremely powerful in chess, which George reckons is 20 years ahead of investing. And he shares some of what he's doing at Gladstone and how the role of an equity analyst will change. George clearly has an incredible brain, and obviously, I was always going to struggle to keep up. But we had a fascinating conversation. Well, I was fascinated, and I'm sure you will be too. So, George, I'm really interested to talk to you because you were a chess international master, but what was behind the move to investing? Did you always want to be an investor?

**George Michelakis** (4:31)
I think I always wanted to be in finance. I grew up in a time where that seemed intriguing. And once I started in finance, I realized that I didn't want to be in finance, and thought, well, what's close enough? And started in private equity, and found that this was back in the late 90s.

**Stephen Clapham** (4:54)
So, when it was still fledgling, interesting.

**George Michelakis** (4:57)
And found the process interesting. Found the people who runs these companies, how did they get to where they got to, why they're for sale. All of the dimensions just intrigued me. And so, that was my start in the investment business. And it was, I think at that time, it was somewhat of an offshoot from the world of finance. It was typically people who had come out of investment banks started all the private equity firms. So, that was my way into the business.

**Stephen Clapham** (5:33)
But why did you move to public equities?

**George Michelakis** (5:36)
So, I met some hedge funds in 2003
And I think the energy, the intellectual flexibility of it all, the depth of conception, it was far less checking that the cash flow number is really 200, and far more understanding where an asset fits into the world. And I think all those dimensions were new to me, and very interesting, I think more intellectually challenging. And so a little less about the diligence and the process, and quickly got intrigued by the short side. So all of a sudden, you've got this new tool that you can use, where private equity is actually, interestingly, a good training ground, because you talk to a lot of companies, you check a lot of the detail behind those companies, you check whether what they say is true, and whether it matches financially. You understand business models. You understand how business models can go wrong, because you're owning assets for the long term. And these are a lot of the things that public market investors don't spend their time on. Not that they couldn't, it's just you tend to be more worried about, is this in the right sector, is the next earnings per share up or down, and is the market going to like the fact that the balance sheet's getting more or less levied? So the focus tends to be more on the narrative and less on sort of diligence in whether what's being said is going to be true.